Sample survey finds over a quarter of mid-sized Asset Managers are failing to fully comply with mandatory TCFD reporting requirements

According to a sample survey conducted by BDO LLP, over a quarter (29%) of asset managers with between £5 billion and £50 billion in assets under management (AUM) are failing to fully comply with mandatory reporting requirement under the Taskforce on Climate-related Financial Disclosures (TCFD) framework, since becoming the latest cohort of firms subject to FCA rules.

The reporting deadline for this cohort of asset managers was 30 June 2024 and applies at both entity and product level, with the former required to be publicly disclosed and the latter available to investors on demand. The largest asset managers (those with over £50 billion AUM), were required to report under TCFD a year earlier, by 30 June 2023.

Our Analysis

BDO LLP’s research into 24 asset managers, analysed required entity-level reports under TCFD by 30 June 2024. Our analysis concluded:

  • 29% of reports did not evidence compliance with all 11 of the TCFD recommendations
  • The most common recommendation that was not complied with related to the undertaking of quantitative climate-related stress testing and scenario analysis
  • 48% have not adopted a science-based target for decarbonisation of their business activity
  • Only 13% have adopted a science-based target and disclosed a transition plan in accordance with the Transition Plan Taskforce (TPT).

By comparison, when BDO researched 18 of the largest asset managers with >£50 billion AUM, our research concluded that all firms demonstrated compliance with all 11 TCFD recommendations with 78% adopting a science-based target for decarbonisation. However, disclosure against TPT remained low at 11%.

Reasons behind the numbers

Based on our knowledge and experience of working with asset managers between £5 billion and £50 billion AUM, we believe the most common reasons for non-compliance with certain TCFD recommendations, or for opting to explain rather than comply could be:

  1. Materiality – medium-sized asset managers often cite that the most severe climate-related stress would not materially impact their business, whether this is financially or non-financially. Nor would their individual activity materially impact the environment.
  2. Resource – medium-sized asset managers do not have the sufficient internal capacity to be able to conduct climate-related stress testing, scenario analysis and devise decarbonisation strategies, whether this be the appropriate and required level of resource, expertise or system-related capacity.
  3. Data availability – linked to the above, in the absence of a system or solution, medium-sized managers often lack the appropriate data to be able to conduct meaningful climate-related stress testing, scenario analysis and devise and monitor decarbonisation plans.

Why is this significant?

Despite the above challenges, regulators, as well as other stakeholders, will increasingly expect asset managers to plug gaps in compliance with climate and other sustainability-related reporting. As evidenced by the FCA’s commentary following previous thematic reviews of firms’ TCFD reporting, they expect firms to comply with all elements of the TCFD framework, or, if not, explain why they have not done so. The FCA also stressed the importance of complete climate and other sustainability-related reporting in light of the forthcoming IFRS Sustainability Disclosure Standards, and the potential move from a “comply or explain” compliance basis to mandatory disclosure requirements. Failure to comply is likely to result in legal or regulatory punishment, and incomplete reporting may have detrimental commercial and strategic impacts too.

BDO’s Financial Services’ ESG Advisory team provides a range of capabilities to support, ranging from climate and sustainability strategy formation, conducting quantitative (rather than purely qualitative) materiality assessments, quantitative climate risk and modelling expertise, carbon emissions advisory and support with drafting compliant sustainability-related reporting.

If you would like to find out more about how we can help you with your TCFD reporting requirements, please get in touch with our team today.

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